A flank that was left unguarded

Hindsight is a terrible thing. The Sahara group may not have made itself so vulnerable had it not decided in 2009 to offer the shares of Sahara Prime City Ltd to the general public.

The move to tap the capital market — only the third time it had done so — brought it within the regulatory scrutiny of Sebi, the securities watchdog.

All companies must submit a draft red herring prospectus (called the DRHP) with the regulator spelling out the reasons for coming out with the flotation and volunteering a lot of information about group companies that it normally would not reveal if it chose to stay private.

The trouble was that the DRHP — a voluminous 934-page document — for Sahara Prime City left out some critical information.

A little-known investor, Roshan Lal, and a body called the Professional Group of Investor Protection alerted the regulator that the DRHP had not revealed that Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL) were issuing convertible bonds to the public throughout the country for several months.

That revelation kicked up a storm after Kandathil Mathew Abraham, a 1982 Kerala cadre IAS officer and a whole-time member of Sebi, started his own investigations into the Sahara group.

In an interim order issued on November 24, 2010, Abraham had barred both the companies from raising money from the public and asked why action, including a directive to refund money raised from the optionally fully convertible debentures (OFCDs), should not be initiated against them.

Another order was passed by the regulator on June 23, 2011. It directed the two companies, apart from its promoter and directors, to refund the money garnered from the issue of OFCDs with an interest of 15 per cent per annum from the date of receipt of money till the date of repayment.

Although the group challenged the directives before the Securities Appellate Tribunal, the tribunal upheld the Sebi orders on October 18, 2011, and asked the companies to refund Rs 25,781 crore to over three crore investors.

The group then moved the Supreme Court, which also passed a significant order on August 31, 2012, asking the two companies to deposit outstanding amount of over Rs 24,000 crore with the market regulator for refunding the investors.

There are two companies from the Sahara group that are now listed on the bourses.

Sahara Prime City issue had initially sought to raise at least Rs 3,000 crore but it could not list on the bourses as the market regulator “closed” the file after it did not receive answers to various clarifications.

Abraham later wrote a letter to the Prime Minister expressing concern that senior officials in the ministry of finance were trying to influence Sebi at the behest of certain corporate houses.